Your Right to Know

WASHINGTON — The average Ohio college student graduates with $28,683 in student-loan debt. And
unless Congress acts before the end of the month, their debts will grow a lot larger.

In a heated partisan debate involving President Barack Obama and lawmakers on Capitol Hill,
Congress is struggling to forge a compromise in time to prevent an interest-rate increase for
subsidized Stafford student loans; the rate is scheduled to double, from 3.4 percent to 6.8
percent, on July 1.

If the rate doubles, then 361,857 students at public and private Ohio colleges such as Ohio
State University, the University of Dayton and Otterbein University would be affected, according to
a study by the Institute for College Access and Success, a nonprofit education organization in
California.

Diane Stemper, executive director of Ohio State’s financial-aid office, said that 59 percent of
the university’s students who graduated in the 2012 academic year had an average debt of $21,566.
She warned that if the interest rate doubles, students facing a debt of $25,470 under the current
loan rate would discover they actually owe $29,782.

“We have an obligation to not make interest rates so high that students can’t pay (loans) back,”
said U.S. Rep. Joyce Beatty, D-Columbus, a former senior vice president at Ohio State. “We should
figure out a compromise that would help young folks continue to matriculate, for them to be able to
say, ‘I can work hard and have a job that will allow me to pay back the loans I took out.’ ”

But as the deadline looms, Republicans and Democrats on Capitol Hill appear divided on how to
avoid a dramatic increase in the interest rate charged to students to finance their college
education. Total student-loan debt nationwide recently surpassed $1 trillion.

Democrats in the Senate and House back a bill that would freeze the interest rate at 3.4 percent
for two years, which they say would allow Congress more time to generate a long-term solution to
the nation’s accumulating student debt.

By contrast, House Republicans approved a bill last month that would make the interest rate on
subsidized Stafford loans equal to the yield of the 10-year Treasury note plus 2.5 percentage
points. The rate would be fluid, changing with the bond-market rate, but it would be capped at 8.5
percent.

Although some analysts believe the differences are not that great, neither side appears ready to
budge. In a speech last month, Obama vowed to veto the House Republican bill if it gets to his
desk, charging that it “fails to lock in low rates for students next year” and “eliminates
safeguards for lower-income families.”

In a statement accompanying Obama’s speech, the White House warned that the House GOP plan “
creates greater uncertainty for borrowers about the total cost of their loans.’’

House Speaker John Boehner, R-West Chester, fired back at his weekly news conference on
Thursday, asserting that Obama’s refusal to compromise demonstrates that the president is “more
interested in scoring political points” than resolving the issue. Boehner said he fears that Obama “
and his party have decided to deliberately allow rates to rise on students and families.”

Sen. Rob Portman, R-Ohio, told Ohio reporters in a conference call that “many of us believe
that, over the long haul, it’s better to tie it to the market because, right now, the rates go up
and down based on congressional action ... and there’s a lot of uncertainty with that.”

Those involved in the student-loan program disagree on which approach is better. Although
Stemper said Ohio State has not endorsed any plan, she said the university “supports tying the
interest rates to the market rate.’’ But she said OSU “believes that all of the proposals need to
be evaluated to determine the best approach to keeping the program both viable and affordable for
students.”

Tabitha Woodruff of the Ohio Public Interest Research Group countered that the Republican
proposals would offer a short-term fix for students entering college in the next few years, but
after that, the rate could soar.

In addition, the Democratic and Republican bills take very different approaches to paying for
the bill.

The Democrats finance their version by closing what they say are tax loopholes, including saving
$4.6 billion over 10 years through a major change in IRAs and 401(k)s.

The Democrats want IRA distributions to a beneficiary to be completed within five years of the
account holder’s death. Under current law, the distributions can take place over the life span of
the beneficiary.

By contrast, the House Republican bill would reduce the federal deficit by $3.7 billion during
the next decade because students would face the possibility of paying a higher interest rate.

“The current high school freshman would be paying for the seniors in high school and paying to
reduce the deficit,” Woodruff said. “Student loans should be looked at as a job creator and an
economic investment.’’